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Hershey profits fall

HARRISBURG, Pa. &ndash; Hershey, the nation&#39;s largest candymaker, reported a slight increase in first-quarter revenues today but said cost-cutting measures resulted in a nearly 24 per cent drop in profits.

Thu., April 19, 2007

HARRISBURG, Pa. – Hershey, the nation's largest candymaker, reported a slight increase in first-quarter revenues today but said cost-cutting measures resulted in a nearly 24 per cent drop in profits.

The Hershey Co. said it earned $93.5 million, or 40 cents a share, for the three months ending April 1. That compares with a gain of $122.5 million, or 50 cents a share, in the same period a year earlier.

Without a one-time charge of $40.4 million for costs to restructure the company's supply chain, the company said it would have earned $118.8 million, or 51 cents a share, which matched the consensus estimate forecast of analysts surveyed by Thomson Financial.

Last year's first-quarter earnings included a pretax charge of $1.7 million, or a penny per share.

Although analysts had expected a lackluster quarter, Hershey shares fell 54 cents to $53.98 in afternoon trading today on the New York Stock Exchange.

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Sales for the Hershey, Pa.-based maker of Hershey's Kisses and Reese's were $1.15 billion, up more than one percent from almost $1.14 billion a year ago. Analysts surveyed by Thomson Financial projected revenue to be almost $1.17 billion.

The company said it expects a 7 percent to 9 percent increase in earnings and a 3 percent to 4 percent increase in sales in 2007.

Hershey has pledged to retrench its marketing efforts as it suffers lingering effects from sluggish sales that hurt its performance in the second half of 2006.

"This is being driven in part by marketplace performance that's not yet achieved desired levels," the company's chairman and chief executive, Richard H. Lenny, said in a conference call with analysts.

Still, he said, "as we start to get things in place, we think we'll begin to see a broader base of support.''

A product recall and six-week plant shutdown in Canada last year slowed sales. But Hershey also said sales stumbled and it lost ground to competitors as it tried to shift from marketing limited-edition candies to newer products like its Cacao Reserve, low-calorie candy lines and Ice Breaker Sours gum.

Valentine's Day sales helped the results and this year's sales did not compare well to last year's because some products have been discontinued, the company said.

Analysts were unimpressed and cited, among other things, a decline in gross margins.

"We didn't expect a great quarter, but it was even worse than our expectations," Prudential Equity Group analyst John McMillin said. "In many ways, they're like the Anheuser-Busch of chocolate, where consumers are trading up to premium items and they're trying to catch up.''

Some saw bright spots that could result in brisk sales in 2007, such as a price increase announced earlier this month and contributions from newer products.

"Hershey's fundamentals are finding solid ground and may accelerate throughout 2007," Banc of America Securities analyst Edgar Roesch wrote in a report Thursday.

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